Appendix 2: Insolvency Amendment (EU 2015/848) Regulations 2017 (SI 2017/702)
Additional Information from the Department for Business, Energy and Industrial Strategy
Q1: When was it clear that this instrument would need to come into force on 26 June 2017? Why did the Government not set a deadline for “settling the instrument” in good time to meet the 21- day rule? Did the Government not consider bringing the SI into force at a later date than 26 June, in order to meet the 21 day rule?
A1: Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) came into force on 26 June 2015. The Regulation provides that the majority of the provisions shall apply in Member States from 26 June 2017.
Originally, the Government’s intention was that the statutory instrument (S1) would extend to England and Wales only and the reserved aspects of Scottish insolvency legislation. The timetable set for preparing and making the regulations factored in the necessary period for the SI to lay before Parliament for the customary 21 days. However, as explained in the Explanatory Memorandum, the drafting was extended to cover devolved corporate insolvency law in Scotland at the request of the Scottish Government and both corporate and personal devolved legislation in Northern Ireland at the request of the Department for Economy in Northern Ireland (given the absence of a devolved government). This had not been foreseen at the original planning stage for the SI Due to the technical complexities of amending the different legislation in each of the three jurisdictions and the necessary co-ordination with legal advisers and officials in the different government departments, the drafting and approval process took much longer than anticipated. This meant that regrettably the instrument was not “settled” in order for it to be laid before Parliament for 21 days.
Consideration was given to whether the SI might be brought into force at a later date, but there were concerns that this could have potentially created difficulties for stakeholders and the courts, which would have been undesirable. The Regulation introduces new legal provisions for voluntary coordination of group insolvency proceedings (where more than one member of the group is subject to insolvency) and undertakings, where an insolvency office-holder offers an undertaking to creditors in another Member State where assets are located, to prevent the opening of secondary insolvency proceedings which would add unnecessary cost. The statutory instrument amends domestic legislation in each of the three jurisdictions to provide procedural rules to facilitate operation of these new policy areas. If the SI had not been implemented by the due date, these procedures would not have been in place and there would have been a risk that the Courts could be required to resolve tensions between EU and domestic legislation. This would have created uncertainty and the likelihood of additional cost for stakeholders. Therefore, in the interests of ensuring a smooth transition to the new arrangements, the Government determined that it would not be sensible to delay the date of coming into force.
We sincerely regret that we underestimated the time and complexity of the project, which meant that Parliament did not have the normal 21 day period to examine the regulations before they came into force. We will ensure that we learn from this for the future by building in scope for unexpected developments within the planning timetable, where at all possible.
Q2: What views were expressed in response to consultations, in particular the targeted consultation in 2017?
A2: The consultation carried out in advance of the publication of the proposed new EU Insolvency Regulation in 2012 indicated that UK stakeholders were generally content that the then existing EU legislation on cross-border insolvency proceedings (Regulation (EC) No 1346/2000) worked, and that achievable modifications to improve the working of it would be welcomed. A further call for evidence was published in February 2013, which was used to inform the Government’s decision on whether to opt in to the new EU Regulation. We received responses from trade organisations, insolvency practitioners, lawyers and academics. The responses were universally supportive of the proposals and of the UK opting-in to the negotiations and the amended EU Regulation
With regard to consultation on the Insolvency Amendment (EU 2015/848) Regulations, the principles of the legislation had already been established in the EU Regulation 2015/848. While our Regulations were complex and technical in their nature, they did not involve any significant policy choices.
However, we sought views on an initial draft of the regulations from a small group of insolvency professionals with specialist expertise in cross-border insolvency proceedings, as well as seeking views on some specific implementation questions. The group was broadly content with our proposed approach to the application of the EU Regulation.
Q3: In the second paragraph of your response to question 1 you say “The Regulation introduces new legal provision for voluntary coordination of group insolvency proceedings…” The Committee would like clarification of how these provisions can be voluntary if they are contained in legislation.
Q4: I see that para 7.4 of the EM refers rather to “a non-binding proceeding so individual office-holders can choose whether or not to participate in the coordination, and even if they do participate, they can depart from the coordinator’s plans at any time”. The Committee also asked if they are voluntary, how can they be effective, because it is in this type of group insolvency that unreasonable delays to creditors occur. If they are non-binding and participants are not obliged to follow the coordinator’s plans what advantage does this add?
A: The provisions relating to group coordination proceedings are contained in Art 61 to 77 of Regulation 848/2015 (the Regulation) so are directly applicable in the UK. These articles are voluntary in the sense that:
(1)No-one is obliged to request a group coordination order;
(2)An individual insolvency practitioner can object to the company (for which they are appointed as insolvency office-holder) participating in the co-ordination proceedings (Art 64); and
(3)Even if they do participate, the insolvency practitioner may choose not to follow the coordinator’s plan and recommendations in whole or in part (Art 70).
The group coordinator does not have powers to override the decisions of the office-holders in proceedings that are coordinated or to direct how those proceedings are conducted. A coordinator will have need to be able to show that recommendations or a plan that are good for the creditors of the group companies as a whole are also good for the creditors of specific companies in order to persuade the office holders to follow them.
Although the Regulation contains the legal framework in respect of group coordination proceedings there are some aspects where national law is needed to provide for the processes involved or because the Regulation leaves matters to national law. So the new rule 21.12 inserted into the Insolvency (England and Wales) Rules 2016 by the UK Regulations sets out the information which must be contained in an application by an insolvency practitioner to a court in England and Wales for a coordination order. New rule 21.13 specifies what must be contained in an order. The purpose of these rules is to ensure that the court receives the right information and that the order is clear about which proceedings are coordinated, and which are excluded. Rule 21.14 requires an office-holder acting in proceedings that are coordinated to send a copy of the order to the registrar of companies where it will be publicly available. New rule 21.15 sets out to whom and when an office-holder who does not follow the coordinator’s recommendation or a group coordination plan must report that decision with reasons. These are matters which Article 70(2) of the Regulation left to Member States to determine. Equivalent provision is made for Scotland and Northern Ireland.
By setting out a framework for coordination within the Regulation and the UK Regulations, we provide a clear, consistent and efficient process which insolvency office-holders can choose to use if they wish. This will encourage participation in attempts to coordinate proceedings if office-holders see the time and cost-saving benefits and better outcomes such as improved chances of a coordinated cross-border business rescue.
Furthermore, as these provisions are contained in the Regulation they enable the coordinator and the coordination proceedings to be automatically recognised in other Member States.
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